Obtain documents before you invest

Now that we are in the multi-currency era, there is no excuse for one not to invest.
The latest “Rise of the African consumer report” by McKinsey indicates that Urban Africans generally have a saving mentality.

I was quite impressed by the fact that about 75 percent of Africans who indicated that they have a bank account said they save every month.

In fact, the report stated that they make a conscious effort to save every month.
About 31 percent reported that they put aside funds for emergencies and 17 percent save for a specific purchase.

Savings were reported to be important for the lowest socio-economic class, 76 percent of whom actively save money.

Technically one needs to save to earn a return on idle resources. Some save to generate a specific amount of money for a specific goal in life.

I believe there are rules that one should operate within for a successful investment. These include investing early, investing in the long term and investing regularly.
Before you make an investment, be wise enough to obtain written documents that explain the nature of the investment.

Some have catchy words that could prove costly in the end. Take care to verify the legitimacy of the investments.

I have heard of too many people that have lost substantial amounts with naivety.
One would even go further and assess the risk return profile of the investment, the higher the risk the higher the returns.

Also know the liquidity and safety aspects of the investments. You need to go as far as examining if it fits with other investments you are considering or those that you already have.
Make sure you are dealing with an authorised intermediary that has thorough knowledge of the industry you want to enter.

There are basically two types of investments one may enter into investment in physical assets such as real estate and investments in financial assets such as fixed deposits with banks, securities marketing related instruments like shares, debentures, bonds.
One can buy and sell securities at a Securities’ market to purchase and sell shares, bonds and debentures.

Stated simply, if you intend on reallocating your savings, you can use the securities market for investments and entrepreneurship.

In Zimbabwe, we have a variety of securities that one can invest in- from shares, to Government securities to mutual funds.

There have been numerous reports in the media in recent months of the delisting of ailing companies from the Zimbabwe Stock Exchange.

This refers to the temporary or permanent removal of securities of a limited company from the stock exchange.

As a consequence of delisting, the securities of that company would no longer be traded on that specific exchange.

I personally have found out that an annual report is the best source of information about the financial health of the company.

It provides assets, liabilities, revenues, expenses and earnings, how the company stood at the end of the year and how it fared profit wise.

One must read the annual report with an emphasis on director’s report and chairman’s statement, auditors’ reports, profit and loss account, balance sheet and notes to accounts attached on the balance sheet.

There are various ways of interpreting these to benefit the potential investor. In the profit or loss account, watch out for an improvement of sales as well as profits over the similar period.
If so, the company’s operational management is good. Check for the other income because companies have a tendency of misrepresenting figures.

If the other income comes out from dividend on investments or interest from loans and advances it is good because such income is steady.

But if the other income comes from selling assets or land be cautious because such income is not an annual occurrence.

Also check increases in expenditure items such as raw material consumption, manpower cost and manufacturing, administration and selling expenses.

Check if the increases are more than the sales. It sometimes reveals that the operating conditions are not conducive for making profits.

Similarly check whether ratio of these cost to sales can be contained over the previous year.
Scrutinise the depreciation and interest for any abnormal increases. The increase in depreciation is attributed to higher addition of fixed assets which is good for long term operations of the company.

High depreciation has a tendency of suppressing the net profits but it’s good for the cash flow.
So instead of looking out for the net profits, check the cash profits and compare whether it has risen.
High interest costs are always a cause for concern because the increased debt burden cannot be reduced in the short term.

American business magnate Warren Buffet once said: “I don’t look to jump over 7-foot bars: I look around for one-foot bars that I can step over.”
Till next week may God Richly Bless you!

Shelter Chieza is an Advisor in Management Issues- she can be contacted at shelter.chieza @gmail.com